We are keeping our Sell rating on CEMEX, S.A. de C.V. (CX). Second quarter results were weak. The continued weak cement volumes in Spain, U.S. and Mexican markets are problematic. Higher-than-normal rain, affected volumes during the second quarter 2008.
The short-term outlook for the company remains highly uncertain based on the downtrend in the residential, industrial/commercial sector and the infrastructure sector as well as due to the real estate prices in Spain, U.K. and U.S. We believe that the recent takeover of the Venezuela subsidiary by the government is also troublesome.
Sales as per volume of cement and ready-mix were disappointing, mainly in Spain. The guidance for 2008 seems too optimistic when compared to the current economic environment in the U.S. and throughout the world. The possibility of a recession in the U.S. in the short-term is real and could affect Mexico due to the economic ties of the two countries.
CEMEX announced that US$400 million synergies by early 2009 in the integration with Rinker Group Limited should improve results in the short-to-medium term. Apart from its expansion plans, CEMEX has been growing through acquisitions. For the full year 2008, we continue to expect EBITDA of about US$5,300 million at the currently prevailing foreign exchange rates.
However, like the U.S. market, Spanish real estate prices might be ready for a short-term correction that could affect CEMEX European operation in the very short term. Additionally, the real estate sector in U.K. is also under threat as prices keeps falling. Considering all these, we are reducing our 2008 earnings estimate to US$2.30 and 2009 estimate to US$2.46.
Read the full analyst report on CX
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.